1099-B Reconciliation Woes

Recently we have been inundated with support requests asking for help with brokerage account 1099-B reconciliation. The reality is that very few of the 2014 1099-Bs will reconcile with TradeLog due to the different ways brokers are interpreting what should be reported, and what should not be reported. There is simply no standardization from one broker to the next.

BACKGROUND

Beginning with 2014 brokers are now required to report option trades on their 1099-B. But not all options are required to be reported. Here are a few of the crazy rules that make this year's 1099 so difficult to reconcile:

Options Opened Prior to 2014:
For example, brokers can report options that were opened prior to 2014, but are not required to do so. Therefore, some do, some do not. Some report some of the options opened prior to 2014, but not all. There is no consistency.

Reporting Date for Short Sales:
Brokers generally report ALL short stock sales as closed on the settlement date of the closing position. Some brokers are erroneously applying this rule to short options trades, some do not. In addition, the taxpayer reporting date for short sales rules only apply to stocks, and only for short sales that closed at a loss. Short sales closed at a gain use the actual date closed, not the settlement date.

Wash Sale Adjustments on Short Options:
The IRS instructions state that wash sale adjustments should increase cost basis. However, some brokers chose to report the net gain/loss instead of the sales amount for these trades. They are in effect adding the profit/loss from short options trades to the Gross Sales total column, which makes the Gross Sales amount totally useless.

Section 1256 Contracts (Broad-Based Index Options):
There is absolutely no standardized list of what constitutes a section 1256 contract, so some brokers are not including the sales from certain broad-based options in the Gross Proceeds total, while other brokers do report some. Again this makes the Gross Sales amount totally useless for comparison.

Other Inconsistencies:
There are a few other inconsistencies with 1099-Bs which we are documenting on our 1099-B Problems page. Since not all 1099s have been released, and we expect many to be amended later, we will be adding to this page as we find new problems.

The Bad News

The net result of all this IRS foolishness is that reconciling your broker provided 1099-B is just about impossible. In most cases the Gross Sales amount as reported on your 1099-B will NOT match with the actual total sales amount as reported on Form 8949.

We have added some check boxes to get you in the ball park, but in many cases it simply will not match. In addition, we have removed the Cost Basis section from our 1099 Reconciliation information dialog because that would only create more problems. If we can't reconcile the sales, then why bother with the cost which has many more adjustments to deal with.

Finally, the process to find out exactly what is causing the difference is way beyond the scope of our software support. The ONLY way to find the many differences is to meticulously compare each and every sale on your 1099 to every sale in TradeLog which could take many hours of manual visual comparison.

So please be kind to our support staff by not insisting that we analyze your 1099 to try and find out why the sales don't match. If you send us your TradeLog file along with a copy of your 1099, we can take a quick look to see if anything jumps out at us. But beyond doing that we really cannot do anything more.

The Good News

However, there is some good news in all of this.

TradeLog is the ONLY trader tax software that at least tries to make sense of all these inconsistencies, and we have reported this to our users as soon as it has come to our attention.

TradeLog continues to provide an accurate Form 8949 accounting of your trades despite what is reported on your 1099. There is no difference in the calculations used to create this report as for the past 14 years we have been applying the IRS wash sale rules as they apply to taxpayers.

The TradeLog 1099 Reconciliation report can still alert you to potential problems with your data, such as duplicate or missing trades. It is just a bit harder to do so than it used to be, but we still encourage it's use.

If you use it for what it's worth, and make sure that all your trades were imported and matched properly, and that your open positions at year end are correct, you can be sure TradeLog is making the proper adjustments to your Form 8949 report.

Phone Support

Increasingly, we have been getting emails demanding that we call users back to discuss their situation. We DO NOT offer phone support.

This strict policy has made it much easier for us to answer support questions promptly. In almost all cases, if you email us a copy of your file along with a brief description of your problem, we can provide a satisfactory solution in record time. Users who have cooperated with us in this manner have praised us for our professional and timely support.

Trader taxes is not an easy task, and the IRS has made an absolute mess of things since 2011. Things have gotten much worse in 2014, and we have been working around the clock to address these issues as best as we can. We do not have the resources of Intuit, yet even large companies like Intuit do not include the necessary trade accounting functions provided by TradeLog.

So all we ask is for is a little courtesy when requesting support via email.

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Please note:
This information is provided only as a general guide and is not to be taken as official IRS instructions.
Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice.
You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.